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Qualcomm Is Acquiring Software From Auto Supplier Veoneer

Mobile chip design leader Qualcomm (NASDAQ: QCOM) recently outbid auto supplier Magna (NYSE: MGA) to acquire smaller auto industry parts company Veoneer (NYSE: VNE). It's clear Qualcomm is serious about increasing its share of advanced driver assist systems (ADAS) on new vehicles, but this acquisition comes with some interesting twists. In this Motley Fool Live segment from "Wheeling & Dealing," recorded Oct. 15, Fool.com contributor Nicholas Rossolillo goes over some of the details.

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Toby Bordelon: A packed show, let's get right to it. I'm going to turn it over to Nick. Nick, why don't you take us through our first deal. This is Qualcomm and Veoneer.

Nicholas Rossolillo: Yeah, this is an interesting one. Lots of M&A activity in the chip industry. But this one in particular is really interesting because Qualcomm is acquiring Veoneer, specifically they're after a software segment that's at Veoneer.

Just a little bit of background on this deal. Everybody knows Qualcomm, huge, dominant player in the global mobile chip space, if you've got a mobile phone, if you've got a tablet or some other type of mobile device, there is a really, really high likelihood that you've got some Qualcomm-designed electronics in there. Qualcomm though is trying to break into the automotive space, so they are acquiring, along with a company called SSW Partners, a private equity firm. They're buying this company called Veoneer and the ticker on Veoneer, I should probably have had that ready, Veoneer shareholders out there.

Basically what this is, is Qualcomm and SSW Partners are offering $37 per share. They actually out-bid another auto parts supplier called Magna. They had actually wanted to take overview here and were offering $31.25 this past summer. Qualcomm out-bid them 37 bucks per share or $4.5 billion. As far as the terms of the deal, is interesting what's happening. SSW is actually going to take the transaction and then sell back the software business at Veoneer to Qualcomm, and then SSW will hold on to the rest of the Veoneer business.

Maybe I can get you guys to weigh in on this here. I just thought I'd share a slide here to explain what it is that Qualcomm is acquiring. This is from Veoneer's annual report for 2020. They've built this specialized system going after Advanced Driver Assist Systems. All of that new tech that right now currently in its current form helps you drive safer. It lets you know if there's obstructions ahead, keeps you in your lane. But the long-term goal here this tech is self-driving cars. This is what Veoneer has built. They design all sorts of systems that go into an advanced driver-assist tech package.

But this is not actually what Qualcomm wants, some of the stuff that Veoneer is designing for some notable automakers. But you notice in each of these deals we will see software, ADAS software, here in the Volvo car, software, that's actually what Qualcomm wants. All of this is actually going to stay with Veoneer under that SSW umbrella. Qualcomm gets the software, which is actually called Arriver.

Interestingly, long before this deal was even announced, even before Magna made a bid for Veoneer, Qualcomm and Veoneer actually made the software business together called Arriver. The software is designed to be built on top of Qualcomm's mobile chip business specifically designed for the auto industry. At the end of the day, $4.5 billion deal, but most of the business is actually going to stay behind. Qualcomm is only getting a small chunk of what's at Veoneer. Kind of a weird merger and acquisition thing going on with this one, right?

Nicholas Rossolillo and his clients have no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Qualcomm. The Motley Fool recommends Magna Int'l. The Motley Fool has a disclosure policy.


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